Question

You are a majority shareholder in an engineering corporation. During the prior tax year, you and your shareholders accounted for more than 20% of a corporation's compensation cost attributable to the performance of personal services. Under the personal service corporation rules, those services would be said to be:
A. the principal activity.
B. substantially performed.
C. insubstantial.
D. ancillary.

Answer 1

Answer is option B. Substantially performed.

??Explanations: In case of personal service corporations there is a test criterion which is known as "Substantially Performed". As per Reg. Sec. 1.441-4T(g)(1) to met the substantially performed test at least 20% of compensation cost of the prior tax year's personal service must be attributable to the personal service of the shareholders of the Personal service corporation. In the given case study it has met the Substantial performance test, hence we can say that it is substantially performed.